Are Tips Going Up?
Figuring out when and how much to tip can be stressful. With the proliferation of cashless payment options like Square and in-app tipping, it's easier than ever to leave a tip without worrying if you have enough cash, and to simply push a suggested preset tip amount.
SEE ALSO: How Much Should You Tip?
But is technology nudging us into tipping more? While some call it "tip creep" or "guilt tipping," the suggested amounts for tips have indeed gone up, and the number of situations prompting us to tip have increased. For example, while the old suggested restaurant tip hovered around 15%, the median is now about 18%. This is probably in part because apps like Square cause people to tip in situations they might not have previously.
Let's explore the ways tech is changing how — and how much — we tip, and the role psychology plays in the tipping process.
Avoiding the 'Pain of Paying'
"Everyone is moving away from cash to credit cards," says David Scott Peters, founder of TheRestaurantExpert.com. "People tend to tip — and spend — more when they use credit cards."
The psychological term for feeling the lightening of your wallet is the "pain of paying," and research shows that spending increases when consumers aren't faced with the physical act of parting with their money. "You don't feel the money leaving your hand," Peters says. "They're not feeling it today. It's just a number on a piece of paper." (Or a button in an app, as the case may be.) People are more likely to round up, and instead of the old minimum of 15%, "you find your way closer to 20%," Peters says.
The Power of Suggestion
Until 2007, New York City taxis only had to take cash, and some drivers were initially reluctant to accept cards. Two years later, drivers felt differently with an extra $144 million in annual tips, which had increased from an average of 10% to 22%. With the credit card payments, riders were opting for default tip options of 20%, 25%, and 30%. (Incidentally, the 1947 guideline for tipping cab drivers was about 12%.)
More recently, Lyft drivers saw an increase in tips on rides over $25. That happened after the ride-hailing app increased its tipping prompts within the app to $2, $5, and $10, instead of the $1, $2, and $5 suggested tips for rides under $25.
And Lyft hasn't stopped there. It redesigned its app's tipping screen, and the June 2018 update resulted in a 20% increase in tip amounts, according to the company. Now Lyft is adding a preset tipping function. This default option allows riders to choose a tip percentage to automatically apply to rides, during times when riders don't actively rate a trip and add a tip.
When tipping is as simple as "hitting a button," Peters says, people often opt for the ease of a suggested amount. As with taxis and ride-hailing services, the suggested amount has also shifted upwards in restaurants. According to Nation's Restaurant News, suggested gratuity amounts even on the bottom of printed checks have increased from 15% to 18% at a growing number of restaurants.
Another factor also is responsible for the tip shift: There's an anchoring effect with suggested amounts, notes Nir Eyal, author of Hooked: How to Build Habit-Forming Products. When presented with three options, people tend to choose a middle option — instead of the lowest suggestion — to avoid feeling stingy.
'No Tip' Means More Pressure
Businesses that use Square for digital payments can create custom amounts or choose from Square tip defaults to display on a separate screen, or on the same screen as the customer signature. The default tipping options are in dollar amounts of $1, $2, or $3, or in percentages of 15%, 20%, or 25% — both with a "no tip" button, as well. This button has a significant impact on the way people tip.
According to a Software Advice survey, 29% of respondents said they would be more likely to leave a tip if they had to press a "no tip" button to opt out of tipping. "It's one thing to bypass a tip jar or just leave the gratuity line blank when you're signing a check, but it's harder to physically press a button saying you aren't going to leave anything," a Square blog post notes.
The "no tip" option creates a social pressure to tip — in fact, one expert jokingly referred to it as the "Costanza effect." However, it's been noted that businesses that use Square sometimes aren't the usual places where one would leave a gratuity. You could get a tip request when buying Girl Scout Cookies, for example. Some argue they feel pressure to tip more than they usually would at a coffee shop or counter-service ice cream shops and bakeries.
In the survey conducted by Software Advice, 41% of respondents said close proximity to a server or cashier when entering a tip amount would "probably" or "definitely" increase the likelihood of tipping. Another aspect of the "no tip" button is that you're pressing it in view of the cashier, who has swiveled the screen toward you at the register.
The Software Advice report also notes that in the case of sit-down restaurants, when iPads are used, the server usually stays with the device until the check has been paid, instead of leaving the paper bill and walking away. Diners might end up tipping more with the server nearby.
Higher Tech, Higher Tips
Square recently released data from a study on how mobile payments affect tips. While 67% of buyers tipped when their card was swiped, 71% tipped when they dipped an EMV chip card, and 73% tipped when making a tap mobile wallet payment.
Ease and Speed Have an Impact
While Square's data doesn't elaborate on why mobile taps increase tipping, the shift for many service-oriented payments is about "convenience and speed," Peters says. In Square's post about increasing tips, one suggested method is to take orders and accept payment while customers are in line to speed up the process. Ease and speed often lead to higher tips.
Time for Change?
It's been an eventful time for tipping policies, particularly in the restaurant industry, according to a 2017 roundup by Eater. While restaurateurs like Danny Meyer have eliminated tips entirely and opted for service-included bills, many restaurants that had experimented with eliminating tips returned to the practice. In the restaurant industry, tipped employees rely on those tips for most of their income. Depending on state law, some servers make as little as $2.13 per hour, while other states require that workers get paid additional wages or minimum wages.
Some would rather err on the side of tipping instead of agonizing over the gratuity. Eyal sees both benefits and drawbacks of the digitalization of tips. On one hand, he notes, transactions are easier and faster, and bad or non-tippers get a nudge in the direction of tipping those in the service industry. "However, for the average person just trying to do the right thing, these devices can mean hundreds if not thousands of dollars spent unintentionally," Eyal writes.
Still, Michael Lynn, a Cornell University professor who has spent decades researching tipping, maintains that being able to add a tip to a restaurant bill actually enhances consumer satisfaction.
Readers, what do you think of "tip creep"? Should 18% be the new tipping minimum for most services? Let us know in the comments below!
Note: Josie Rubio died on December 3, 2019.